2.4-Inflation Flashcards
What is inflation?
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.
True or False: Inflation can lead to a decrease in the value of money.
True
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures changes in the price level of a basket of consumer goods and services.
Fill in the blank: Hyperinflation is typically defined as inflation exceeding ______ percent per month.
50
What are the two main types of inflation?
Demand-pull inflation and cost-push inflation.
Multiple Choice: Which of the following is a cause of demand-pull inflation? A) Increase in consumer confidence B) Increase in production costs C) Decrease in money supply
A) Increase in consumer confidence
What is cost-push inflation?
Cost-push inflation occurs when the costs of production increase, leading to a decrease in supply and higher prices.
True or False: Deflation is the opposite of inflation.
True
What is stagflation?
Stagflation is a situation characterized by stagnant economic growth, high unemployment, and high inflation.
Fill in the blank: The central bank often uses ______ to control inflation.
monetary policy
What is the formula for calculating the inflation rate?
Inflation Rate = (CPI this year - CPI last year) / CPI last year * 100
Multiple Choice: Which of the following is NOT a consequence of inflation? A) Decreased purchasing power B) Increased uncertainty C) Higher interest rates D) Guaranteed higher wages
D) Guaranteed higher wages
What is the role of the Bank of England in managing inflation?
The Bank of England sets interest rates and uses other monetary policy tools to target an inflation rate of 2%.
True or False: Inflation can benefit borrowers.
True
What is the difference between nominal and real interest rates?
Nominal interest rates are not adjusted for inflation, while real interest rates are adjusted for inflation.
Fill in the blank: ______ inflation is often seen as a sign of a growing economy.
Moderate
What is the impact of inflation on savings?
Inflation erodes the value of savings, as the purchasing power of money decreases over time.
Multiple Choice: Which index is often used to gauge inflation? A) Dow Jones Index B) Producer Price Index C) S&P 500 D) NASDAQ
B) Producer Price Index
What are inflation expectations?
Inflation expectations are the beliefs or forecasts that consumers and businesses have about the future rate of inflation.
True or False: High inflation can lead to a decrease in investment.
True
What is a price index?
A price index is a measure that examines the weighted average of prices of a basket of consumer goods and services.
Fill in the blank: The ______ effect refers to how inflation affects the real value of debt.
inflation
What is the relationship between inflation and unemployment called?
The Phillips Curve.
Multiple Choice: What is usually the central bank’s target inflation rate? A) 1% B) 2% C) 3% D) 4%
B) 2%
